ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Real versus nominal GDP
Consider a simple economy that produces two goods: stickers and paper plates. The following table shows the prices and quantities of the goods over a three-year period.
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Year
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Stickers
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Paper plates
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|---|---|---|---|---|
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Quantity
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Price
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Quantity
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(Dollars per sticker)
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(Number of stickers)
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(Dollars per paper plate)
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(Number of paper plates)
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| 2020 | 3 | 260 | 2 | 160 |
| 2021 | 4 | 120 | 2 | 220 |
| 2022 | 3 | 155 | 2 | 140 |
Use the information from the preceding table to fill in the following table.
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Year
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Nominal GDP
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Real GDP
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GDP Deflator
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|---|---|---|---|
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(Dollars)
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(Base year 2020, dollars)
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| 2020 |
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| 2021 |
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| 2022 |
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From 2021 to 2022, nominal GDP DECREASED OR INCREASED , and real GDP INCREASED OR DECREASED.
The inflation rate in 2022 was -13% or -.01% or 13% or 87% or 115%.
Why is real GDP a more accurate measure of an economy's production than nominal GDP?
a. Real GDP is not influenced by price changes, but nominal GDP is.
b. Real GDP measures the value of the goods and services an economy produces, but nominal GDP measures the value of the goods and services an economy consumes.
c. Real GDP includes the value of exports, but nominal GDP does not.
Expert Solution
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Step 1
The market value of the products and services produced during a given period is known as the nominal gross domestic product. The real GDP is determined for a given time and adjusted according to the price level. It represents the adjusted market value of the products and services.
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